Saudi Arabia’s energy minister is hoping Russia will pull its weight on recently agreed OPEC oil production cuts despite its slow start, expressing confidence on Monday that the world’s second-largest exporter would come through.
“We’re committed both to the agreement in December … All indications so far so good, the Russians have promised me that they will pick up the pace,” energy minister Khalid Al-Falih told CNBC’s Hadley Gamble in Riyadh on Monday.
OPEC members, along with several other countries, in December agreed on output cuts totaling 1.2 million barrels per day (bpd) in order to stem a sinking market and support their own export-dependent economies. “OPEC plus” refers to the group’s cooperation with the non-OPEC producers like Russia and other former Soviet states.
Russia was more reluctant to cut its output, as its growth is heavily dependent on robust crude exports.
Russia has initially let the Saudis shoulder the bulk of output cuts. The top OPEC ally, which in late 2016 began a cooperation agreement with Riyadh to stabilize oil prices, has often said that $60 per barrel is enough to meet its economic needs. Moscow in December said it would cut production by 50,000 to 60,000 barrels per day in January, whereas Saudi Arabia reportedly pledged to cut by 900,000 barrels a day compared with November levels.
Russia pumped a record 11.45 million bpd in December, an increase of 80,000 bpd on the previous month, its energy ministry reported in early January. Saudi Arabia’s crude output, by contrast, fell by more than 450,000 bpd from November to December.
Global benchmark Brent crude has bounced back 25 percent from its late December route, but is still far from the more than $86 per barrel highs it witnessed in October. Brent was trading at $60.18 a barrel at 2.30 p.m. London time.
Russia agreed to a greater production cut of 230,000 bpd for the first half of 2019 from the 11.41 million bpd level it reached in October, according to Reuters.
OPEC’s monthly oil market report forecast that Russia wouldn’t fully comply with the cuts agreed to for the first half of this year. Its ability to swiftly decrease production levels is hindered by ageing oil infrastructure and mature oil fields. And unlike Saudi Arabia which has one national producer, Aramco, Russian output is dependent on the decisions of multiple major oil companies.
Russian energy major Rosneft, for instance, has plans to expand production from new Siberian fields it launched last year. “For 2019, based on project ramp-ups in Russia, Russian oil companies are expected to potentially further increase production through greenfield development,” OPEC’s January market report said.
In 2017, when OPEC and its allies first cut production, Russia similarly took baby steps compared to its Saudi counterpart due to the challenge of making changes to oil fields in the freezing Siberian winter.
“I’m hoping they do better in January, they understand that,” Al-Falih said. “They have had some issues, but just like last year, they’ll catch up.”